A recent visit by U.S Secretary of State Hillary Clinton to India has paved the way for American companies to sell sophisticated arms to India. India plans to spend billions of dollars to modernize its military.

For American companies wanting to pick up lucrative defense contracts in India, an "end use monitoring pact" finalized by India and Washington has come as welcome news.

The U.S. India Business Council says the agreement will enable defense and security trade between the two countries "as never before."

The end use monitoring pact, a requirement under U.S. law, was announced during the recent visit of U.S Secretary of State Hillary Clinton to New Delhi. It allows Washington to monitor that sophisticated defense technology and equipment are not re-sold to third countries, and removes a key barrier to American military exports to India.

Rahul Bedi with Jane's Defense Weekly in New Delhi says India is emerging as one of the world's largest markets for defense equipment as it plans to spend nearly $50 billion over the next five years to modernize its military.

"This pact opens up the possibility of business worth anywhere between about 14, 15 to $20 billion in fighter aircraft, in attack helicopters, in light observation helicopters, in heavy lift helicopters, and also a range of varied ordinance equipment, hardware, so it opens up tremendous possibilities," Bedi said.

The pact will particularly benefit U.S. companies Lockheed Martin and Boeing, which are bidding for the most sought after contract India is handing out - the sale of 126 multirole fighter jets worth more than $10 billion. The U.S. companies are competing with other global defense giants for the contract.

Most of Indian defense equipment was procured from the former Soviet Union, but over the last 15 years, India has also been buying equipment from countries such as France, Britain and Israel.

In the wake of the significant improvement in relations between India and the United States, New Delhi has also made deals in the last year to purchase military transport aircraft, and maritime reconnaissance aircraft from the United States.

Rahul Bedi says the end user monitoring treaty will ensure that the equipment being bought can be equipped with sensitive technology.

"A lot of the equipment which the military wanted was highly sensitive, and subject to the end user monitoring treaty," Bedi said. "Now it is going to free up all these aircraft and all these platforms to be equipped with high tech and avionics weaponry."

Foreign companies say the Indian defense market has great potential as its military seeks access to high technology equipment. India was the world's tenth largest military spender in 2008.